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About Coffee

Coffee is undeniably one of the world’s most popular drinks. But how often do we think about the people behind the beans?

Coffee — where it comes from and why it is important

A 9th-century goat herder in Ethiopia’s Kaffa province, where the coffee tree originated, is said to have discovered the coffee bean’s stimulating properties. Muslim traders and pilgrims took the beverage across the Middle East and North Africa.

Coffee was planted by the Dutch in India, Java and Sri Lanka towards the end of the 17th century and later in South America. The Dutch colonies were soon the main source of coffee to Europe, its production linked with colonial growth and slavery. Coffee quickly became one of the most valuable primary products in global trade.

Coffee was brought to the Thirteen Colonies and early colonists quickly got a taste for the stuff. It wasn’t until the Tea Act of 1773, when tea became heavily taxed and led to the Boston Tea Party, did colonial Americans switch their beverage of choice to coffee.

Worldwide consumption of coffee increased two-fold over the four decades from 1970 to 2013, from 4.6 million tons to 9.6 million. A total of 30% of the world’s coffee is consumed by coffee producing countries, led by Brazil, where consumption reached 1.3 million tons in 2013. The rest is traded internationally – the United States is the largest importer, followed by Germany and Japan.

While coffee is cultivated in over 70 countries, just four produce over 60% of global supply – Brazil, Colombia, Vietnam and Indonesia. Meanwhile, Latin America is responsible for 60% of regional production while Asia and Oceania have a 27% share, and Africa 13%.

Coffee exports provide significant income for producer countries, with governments relying on foreign exchange earnings to provide better education, health care and infrastructure. Burundi, for instance, depends on coffee for 60% of its export earnings, Honduras for 25% and Nicaragua for almost 20%.

Half a million smallholders produce coffee in Uganda — the main source of income for 8% of the population, or around 2.5 million people. Meanwhile, 15 million smallholder farmers in Ethiopia (nearly one in five of the country’s population) rely on coffee for their livelihood. Coffee exports made up 25% of the country’s total export earnings in 2014.

Challenges for coffee farmers

The decade is set to pose many hurdles for the world’s coffee sector.

These include volatile coffee prices, the ongoing world economic crisis, supply shortages from key coffee producing countries, increasing production costs and less land and labor. Food security and poverty in coffee farming communities and the impacts of climate change are also challenges farmers face.

In 2011, the world coffee market – including fresh and instant — increased in value by 17.5% to $70.86 billion. Coffee beans can pass hands dozens of times along the supply chain, which is dominated by a small number of multinational trading and roasting companies. Around 40% of global coffee trade is controlled by four companies (ECOM, Louis Dreyfus, Neumann and VOLCAFE).

But farmers aren’t finding it nearly as profitable as the food companies. In the 1970s, coffee producers received an average 20% of shop-bought coffee’s retail price. In the 1994-2004 coffee crisis, when oversupply meant prices sank to their lowest point, producers were found to be receiving just 1-3% of the price of a cup of coffee in a café in North America or Europe, and 2-6% of the value of supermarket-bought coffee.

Farmers are the hardest hit when it comes to the well-known fluctuation of global coffee prices. The price of Arabica coffee has in recent years gone from a three-decade low of 45 cents a pound in 2001 to a 34-year high of nearly $3.09 in 2011. And between May 2011 and December 2013, prices dropped by 65% as the global financial crisis and a glut in supply of coffee took its toll. Such price volatility has an impact for the people who rely on coffee for an income. Farmers struggle to predict what they will earn for the next season and find it difficult to plan for their future.

When prices are low, producers do not have the incentive or resources for fertilizers and pesticides or to replace old trees. And when prices drop below production costs, they struggle to provide adequate food for themselves and their families, to afford health care or to pay education expenses for their children to go to school.

Coffee growing is also being impacted by climate change, which means there are increased risks to farmers that depend on the sale of coffee. Find out more about how climate change affects coffee farmers.

How Fairtrade is working to improve things

Fairtrade was borne out of the challenges coffee farmers in Mexico faced after global coffee prices collapsed towards the end of the 1980s.

The 1962 International Coffee Agreement (ICA) and successive agreements between governments of both producing and consuming countries were partly responsible for a reasonable balance of supply and demand in the coffee market from the 1960s until 1989. Much of the world’s coffee trade was regulated by the ICA through export quotas and buffer stocks, a system which meant – on the whole – stable and advantageous prices for growers.

In 1989, the economic clauses of the ICA were suspended due to quota system abuse and their lack of compatibility with widespread free market economic policies. Governments of producing countries were required by controversial IMF and World Bank structural adjustment programs (SAP) to privatize industries controlled by the state such as the coffee sector, and open them up to competition from private traders ostensibly to boost efficiency. The result was that global coffee prices dropped straight away by half to less than $0.80 per pound.

The ICA’s collapse and the price crash that followed played a major part in the launch of Max Havelaar, the first Fairtrade label, by the Dutch development agency Solidaridad.

Dutch supermarkets stocked the first “Fairtrade” coffee from Mexico in 1989, which was called “Max Havelaar” after a character in a 19th century novel who opposed the exploitation of coffee pickers in Indonesia.

Fairtrade was set up so that coffee farmers earn a fair and stable price that covers the production costs of what they grow. The price for Fairtrade coffee differs based on the quality of the bean and is processing. Fairtrade certified washed Arabica coffee has a Minimum Price of $1.40 per pound, plus 30 cents if it is organic. Fairtrade coffee co-operatives also receive an extra 20 cents per pound in Fairtrade Premium to spend as they choose — 25% of the Premium earning are invested in boosting quality and productivity.

The Minimum Price and Premium provide Fairtrade coffee farmers with the confidence and stability to be able to plan for the coming season, budget for household costs and bring change to their communities. For 15 of the last 24 years, when the world price for Arabica coffee has often dropped significantly below the Fairtrade Minimum Price, it has meant farmers can bring in enough income to at least meet the basic costs of sustainable production.

At the end of 2013, 439 smallholder coffee producer organizations in 30 countries were Fairtrade certified. And more than 730,000 small-scale farmers were members of Fairtrade coffee producer organizations.

Fairtrade coffee farmers grow their beans on 2.5 million acres around the world, producing over 521,000 tons of Fairtrade certifiable coffee in 2012-13. A total of 37% of this Fairtrade coffee was organic certified.

The Fairtrade Premium enables organizations to invest in better infrastructure, training on better farming practices or credit and financial services. It also means Fairtrade coffee producer organizations can make cash payments to members facing issues with food security, for example. Fairtrade Standards aim to deliver against the three pillars of sustainability — economic, social and environmental.

Beyond the Fairtrade Minimum Price and the Fairtrade Premium, Fairtrade offers vital support and training to farmer organizations so that they can flourish. Training Fairtrade coffee farmers to adapt better to climate change is one of the primary focus areas — watch a video (below) of coffee farmers in Peru sharing their knowledge with others.

One of the other challenges the coffee sector is facing is how to inspire the farmers of the future. Fairtrade International is working to address this issue with Sustainable Harvest, a coffee importer, and Fairtrade coffee cooperatives. Learn more about this partnership.